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Email this8:25 am
January 18, 2013
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Right now the highest TFSA rate is 3% at People's Trust.
The highest bank rate is 1.95% at Accelerate and Hubert.
I'm wondering if life insurance companies have any interesting products that exceed these rates?
One of the advantages of life insurance companies is they can help people/organizations you will your money to avoid probate. I think you can do the same with your TFSA account too. Please correct me if I'm wrong. This is a great feature as probate can delay post death money transfers not to mention the cost, especially the legal cost which, for a smaller estate, can really eat into the total. All our investments should be structured to avoid probate if possible.
9:04 am
December 23, 2011
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If you are married
All your bank accounts should be joint
RRSP and TFSA your spouse should be your beneficiary and in some cases for TFSA you can add alternate beneficiaries
If you are not married I imagine you can do similar with a parent, child, friend or?
All above avoids probate,
Probate fees are not a huge number. Simple estates can be done by your self and won't cost more than 500 excluding probate fee.
I have looked at what insurance companies offer and find they are not competitive to bank or credit union rates. Although I have no experience with investing with insurance companies and would imagine they would steer you towards insurance products and annuities. Do your homework before you leap.
Like they say if you want a good rate from a bank then don't buy their GIC, buy shares in the bank. Maybe that is so, for Life Insurance Companies as well. There are some ETF's that offer Insurance Companies that you can put in your TFSA.
11:43 am
October 21, 2013
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I have wondered, too, if there are hidden benefits to insurance company products.
Annuities have their own benefits, even though rates are not good right now and may never be in my lifetime. But they can have huge tax advantages in non-registered accounts because you are only taxed on the part that is "interest", not on the part that is deemed to be return of your capital.
I think too that there is or was something about insurance products not being accessible to your creditors if you were in bankruptcy etc., but not sure how that works.
As kanaka said, tax planning for death can deal with assets held in a marriage.
The degree to which one is concerned about probate depends on what one's plans are for one's money after death. If you don't have children etc, you might not care so much and might prefer to make decisions that benefit you more while you're alive.
I believe that with an RRSP/RIF, only a spouse can receive the money sheltered. You can designate another beneficiary but the plan will have to be collapsed first. T
here is also a distinction between spouse and other beneficiaries with TFSA. I think but am not sure that with the latter, only a surviving spouse who is designated as the survivor-something can move the money directly into their own TFSA, thus continuing to shelter it, but any beneficiary can receive the money as is and benefit from the fact that it was held tax-free prior to death but they can't put it into their TFSA unless they have room available. When designating someone to receive your TFSA, you have to specify if it is spouse or not, and fill out the form accordingly.
7:37 pm
April 6, 2013
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traveling_ING said
...One of the advantages of life insurance companies is they can help people/organizations you will your money to avoid probate. I think you can do the same with your TFSA account too. Please correct me if I'm wrong. This is a great feature as probate can delay post death money transfers not to mention the cost, especially the legal cost which, for a smaller estate, can really eat into the total. All our investments should be structured to avoid probate if possible.
I found that the one-time probate tax would be cheaper than what the insurance producs would cost each year.
Agents will tell people their products can avoid probate without giving specifics about how much probate will cost. In Quebec, notarial wills have zero probate. In BC, the one-time probate tax is around 1.4% of the estate's value. In Ontario, it is around 1.5%. That's much less than the 1% to 2% each year in fees or lower rates from insurance products, not including the cost of any life insurance one usually has to buy with the products.
1:56 pm
April 6, 2013
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Loonie said
...
Annuities have their own benefits, even though rates are not good right now and may never be in my lifetime. But they can have huge tax advantages in non-registered accounts because you are only taxed on the part that is "interest", not on the part that is deemed to be return of your capital.
....
Contrary to what sellers of annuities suggest, there's nothing really special about that. What is not said is that the part of the payout that's deemed to be return of your capital actually is return of your capital!
One could draw 3% a year out of an Oaken saving account that currently yields 1.75%. Only about 1.75/3 = 58.3% of the amount drawn would be taxable. The rest would be tax-free return of capital.
The payout rate is not always the rate of return.
6:54 pm
October 21, 2013
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It's true that the untaxed annuity return is your own money. The advantage, as I understand it, is that you can make it last indefinitely as a source of income, depending on how you choose to structure it. If you become unable to manage your affairs, the system is fixed in place so that nobody else is deciding how to invest your money later, and your income is predictable. Also, by choosing when to buy it, you might be able to effectively lock into better interest rates - should they ever occur! People who bought them quite a while ago are probably doing very well with them right now.
I had to think a moment about what was meant in regards to an Oaken account. I believe this is referring to a retirement-type scenario where one would be drawing down one's investments to live on at a rate of 3%, which represents a combo of principal and interest, and in that respect similar to an annuity. I hadn't thought of it that way. I suppose one would have to do the math in more detail to see if it's worthwhile to do an annuity or whether you can in effect create your own without paying an insurance company a piece of the pie. Alternatively, you could invest in insurance companies!
For what it's worth, the suggestions I have read say that it's best to wait until you are at least 75 years to buy an annuity, and some say 80 to 84. I think this is particularly applicable to RRSP money because in that situation ALL the money is taxable, both principal and interest. You can buy an annuity with RRSP/RIF money and sidestep the high mandatory withdrawal rates in the latter years because the annuity income is spread out more evenly over time.
9:56 pm
August 5, 2014
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Loonie, I heard of term certain annuities that pay a fixed amount every month for the annuitant which is the owner of the annuity and then any spouse or other beneficiaries.
The highest 25 year rate I was told is 3.32% currently and the monthly payments for 300 months on a $100,000 annuity is $489.55 from Manulife Investments. No matter how long anyone lives, they are going to get all $489.55, 300 monthly payments.
Like other interest rate based investments, they are not that great now but I guess if someone has a large RRSP and does not know how to get a safe, reliable monthly income from it then it could be what they are comfortable with.
My adviser told me that Assuris, http://www.assuris.ca guarantees $2,000 a month for annuities from Canadian life insurance companies.
10:18 pm
October 21, 2013
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Yes, I'm sure the rates right now are horrible.
For those of us in the retirement phase of life, the question is both if and when to buy an annuity. Rates may never get significantly better. The timing of the "buy" has a lot of implications, both for the rate and for taxation.
Yes, that's what I understand about the insurance too. Not much chance of exceeding the limit these days! If one should be able to afford to put more money in annuities, you can spread them around, just like one spreads money around different banks in order to get full CDIC protection.
10:27 pm
August 5, 2014
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Loonie, what a great problem for most Canadians to have more than $400,000 in RRSP's and other investments.
10:30 pm
April 6, 2013
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Loonie said
...
I had to think a moment about what was meant in regards to an Oaken account. I believe this is referring to a retirement-type scenario where one would be drawing down one's investments to live on at a rate of 3%, which represents a combo of principal and interest, and in that respect similar to an annuity. I hadn't thought of it that way. I suppose one would have to do the math in more detail to see if it's worthwhile to do an annuity or whether you can in effect create your own without paying an insurance company a piece of the pie. Alternatively, you could invest in insurance companies!
....
One can certainly create one's own term-certain annuity. The example I gave of 3% payout with 1¾% return would last about 50 years:
Start of Year 1: $100,000.00
Start of Year 2: $100,000.00 + $1,750.00 - $3,000.00 = $98,750.00
Start of Year 3: $98,750.00 + $1,728.13 - $3,000.00 = $97,478.13
Start of Year 4: $97,478.13 + $1,705.87 - $3,000.00 = $96,184.00
Start of Year 5: $96,184.00 + $1,683.22 - $3,000.00 = $94,867.22
...
Start of Year 48: $12,773.08 + $223.53 - $3,000.00 = $9,996.61
Start of Year 49: $9,996.61 + $174.94 - $3,000.00 = $7,171.55
Start of Year 50: $7,171.55 + $125.50 - $3,000.00 = $4,297.05
Start of Year 51: $4,297.05 + $75.20 - $3,000.00 = $1,372.25
For what it's worth, the suggestions I have read say that it's best to wait until you are at least 75 years to buy an annuity, and some say 80 to 84. I think this is particularly applicable to RRSP money because in that situation ALL the money is taxable, both principal and interest. You can buy an annuity with RRSP/RIF money and sidestep the high mandatory withdrawal rates in the latter years because the annuity income is spread out more evenly over time.
I would think that the payout from a life annuity will be quite high if one buys it late. At age 80, the annuitant is expected to be around probably for another 10 or so years only. Life insurance company would know this and could offer to payout much more than when one buys the life annuity at 65.
3:36 pm
December 23, 2011
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Look at point #5
3:58 pm
August 5, 2014
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Kanaka, all resourceful information but about point #5, insurance companies GIA's are not that great on the rate side compared to GIC rates.
4:07 pm
December 23, 2011
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Yes I should have linked it to the first post belonging to traveling_ING mainly in regards to bypassing probate.
4:13 pm
August 5, 2014
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Kanaka, Sun Life Financial 5 year GIA is only 2.10%, Equitable Life of Canada 5 year GIC is only 1.95%. In order to get a 2.90% GIA rate with Equitable Life of Canada, you have to go all the way up to 15 years which is lower compared to other 15 year rates available from other fixed rate investments
My adviser quoted me some 15 year bonds and zero coupon bonds from 3.30% to 4.21% last week.
Unless someone else on this forum knows about higher GIA rates then they do not look promising compared to 5 year GIC's in the 2.80% to 2.90% range.
Sorry Kanaka, I posted this before I read your post above.
4:25 pm
August 5, 2014
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Kanaka, about probate, I am no legal expert but for RRSP's, RRIF's, annuities, RESP's, TFSA's etc. with any named beneficiaries will go directly to them avoiding probate.
This is why I think that naming the right beneficiaries where they are available to do so is very important.
Always keep up to date naming beneficiaries and make sure they are correct.
5:12 pm
December 23, 2011
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For beneficiaries and successors it seems that is based on who you deal with....they don't all offer the same thing
For example Accelertate for TFSA offers a successor (my wife) and in the event of her not wanting or also dying I was also allowed to provide alternate benificiaries (my 3 daughters). This is not offered by others. Oaken only offers successor for RRSP or beneficiaries...one or the other but not both. I assume that in itself (managing successors and beneficiaries) has to be kept up to date due to any events just as you would for your will. For TFSA and RRSP I know this......eg. My balance is fully transferable to my wife without affecting her contribution room without any tax consequences. Yes there would be tax consequences once she began to withdraw RRSP but none on TFSA. BUT from what I understand is if I have no spouse and the beneficiaries to my RRSP where my daughters the RRSP has to be liquidated WITH tax consequences before the funds are distributed. That could be a huge hit for my last income tax return!!!! From what I see for TFSA if my daughters were the remaining beneficiaries they would receive the funds tax free but holding that extra amount in their personal TFSA acount would not be allowed. The question is, would my estate have to pay income on the income or interest accrued after death.
No doubt if you want your spouse or commonlaw partner to inherit your funds make sure you know the difference between successor and beneficiary.
http://business.financialpost......=76c4-bf64
You need to plan both...avoid probate and income tax (manage into lowest rate).
Please write your comments in the forum.